Allowing a large family with young children or a stiletto-clad hen party to charter your superyacht may sound daunting - but what are the real risks, and how can they be managed?
Jessica Taylor and George Kaye, respectively a legal director and senior associate at international law firm HFW - known for advising leading shipyards and high-profile yacht owners and charterers on some of the industry’s most complex and high-value projects - answer key questions that yacht owners and charterers often have when considering chartering for the first time.
What is in a charter contract?
The most common contracts are those published by MYBA, generally used for charters in the Mediterranean, and IYBA generally, used in the United States, but we will focus on the MYBA Charter Agreement today as that’s the one we see the most. It allows the charterer (be it an individual or company) to rent the yacht for a certain period of time in exchange for the payment of hire, subject to the specific details agreed in the charter contract. The general day-to-day expenses of using the yacht, such as fuel, berth fees and food and drinks for the charter party are paid on top, by way of a self-explanatory Advance Provisioning Allowance (APA), which can be topped up as required.
The MYBA and IYBA contracts are very much designed to be standardised agreements that charter brokers can use without any interference from lawyers - at HFW, we would often only get involved at the contract stage if there were special circumstances such as the yacht being used in a film or very specific requirements from one party. There is a blank page in the contract where owners can add their own special requirements, such as no smoking or specific limitations on the use of the yacht or its water toys.
The MYBA contract has been recently updated to include a few market additions and clarifications, such as a KYC (Know Your Client) clause and a sanctions clause, reflecting the evolving global landscape and applicable laws and regulations in this industry.
How often do disputes occur?
Chartering a yacht is not the same as booking a hotel; the obligations on a charterer and its guests are quite different, being on board a floating asset of significant value.
When disputes escalate to the point where lawyers become involved, we see a broad range of issues. These can include damage to the yacht or its contents or a yacht not meeting the charterer's expectations, or perhaps dissatisfaction with the crew. That said, the charter agreement itself is generally robust, and most disputes are manageable within its framework.
More serious matters - such as drug use - are thankfully rare. This is largely because the consequences are so clearly defined in the agreement that there’s little room for debate. Plus, nowadays, situations like these are typically no longer overlooked or informally resolved; instead, they are treated with the seriousness they warrant. A captain has the right to terminate the charter and disembark the guests.
If a charter guest damages the yacht, what are the owner's legal options for recovery?
The MYBA Charter Agreement includes a provision stating that the charterer is liable for any loss, damage or liability arising from the negligence of the charterer or their guests. If a charter guest causes damage to the yacht, the charterer will not be able to redeliver the yacht in the same condition as when it was hired and the charterer will be obliged to make good that damage. Often, a security deposit is paid along with the charter fees and it is held in escrow pending the conclusion of a successful charter.
Are security deposits required with every charter?
Some owners require a security deposit from charterers. It largely depends on the owner and perhaps whether the charterer is known to the brokers or the owner. The MYBA Charter Agreement includes provisions for a security deposit, and we would always recommend that one be taken, but ultimately, it’s at the owner’s discretion.
What happens if there’s no security deposit in place and damage occurs?
It’s the same, but there is no security deposit to pay for any damage, and the owner has to pursue the charterer for the payment.
In both instances, if damage occurs that goes beyond what’s considered fair wear and tear - say, for example, a painting on board is slashed or there's damage caused by guests who’ve had too much to drink - then typically, the owner will take the position that the charterer is responsible and would be expected to cover the cost. In such cases, it’s common to obtain one to three repair quotes, agree on the cost and then either deduct it from the security deposit (if one exists) or have the charterer pay directly.
If the charterer disputes the claim - arguing that the damage amounts to normal use - then the contract provides for arbitration. At that point, you may need to bring in an expert to determine whether the damage truly falls outside the bounds of normal wear and tear, and there may be witness evidence to confirm what happened. The tribunal would reach a decision and apportion liability. In our experience, issues are usually sorted out well before this - it's rare for it to become a fight and usually only where it's something of high value.
Arbitration typically works by having each party appoint their own arbitrator - one chosen by the owner and one by the charterer. If those two arbitrators cannot reach an agreement, they will jointly appoint a third. This panel is usually selected from a list maintained by a recognised arbitration body. The arbitrators themselves are often retired solicitors, barristers or individuals with significant experience in handling these types of disputes.
If damage occurs, what are an owner’s rights if they decide to make an insurance claim?
Of course, the damage may be significant and exceed the amount of any security deposit, and an owner may be covered under their insurance policy. A key update in its recent revision clarifies that, where an insurance claim is made for loss arising from damage caused by the charterer, the charterer must pay the owner's deductible (excess).
Should owners obtain additional liability insurance when chartering out their yacht?
An owner will have their yacht insured for commercial use, so the insurers and insurance brokers will be aware that the yacht will be chartered.
Is the primary charterer liable for the actions of all guests on board, even if they weren’t directly involved?
The charter agreement is a contract between two parties, and the charterer - whether an individual or a company - is legally responsible for the actions of all guests on board. If a contractual claim arises, the owner must direct that claim to the charterer. However, there are other forms of liability - such as criminal acts including sexual assault, physical aggression or theft - for which a guest may be personally liable.
What kinds of misconduct can justify immediate termination of a charter?
With the MYBA Charter Agreement, two circumstances would result in an immediate termination, and then there are a number of circumstances that would lead to a termination if the circumstances are repeated or continue.
Immediate termination of the charter, when a captain or owner has the right to end the charter and disembark guests at the nearest port, may occur when there is a breach of any law or regulation of any country by the charterer or a guest(s)and that breach results in the detention, arrest, or fining of any crew member, guest, or the vessel itself or physical or sexual assault, possession of illegal drugs or weapons.
Other circumstances that may warrant termination if not stopped include poor or dangerous behaviour on the yacht or disrespectful behaviour towards crew. However, the captain would need to give notice to the charterer first before the charter can be terminated on these grounds.
Which country’s jurisdiction applies on board?
This depends on where the yacht is at the time of the offence. If a criminal offence happens when the yacht is in international waters, then the law of the flag would apply and the captain would have overriding authority to ensure the safety of life at sea, protection of the yacht and to uphold the law. If a criminal offence occurs whilst the yacht is sitting in France, for example, you would need to consider both the law of the flag and French law and how they interact, although typically territorial jurisdiction would normally take precedence over the flag.
Can you legally screen charter clients for red flags, such as prior insurance claims, misconduct reports or criminal history?
Brokers typically conduct due diligence on prospective charterers. Much of this insight comes from industry knowledge - brokers speaking with one another about who is active in the market, who has a good reputation and who might raise concerns. But it is also important to know that any disputes that end in arbitration will not be for the public record. Arbitration, as a matter of English law, is a private and confidential process, so in theory, if a charter and an owner had a dispute, no one should ever know about it.
The updated MYBA Charter Agreement introduced earlier this year now includes a Know Your Client (KYC) clause, which formally entitles brokers and owners to request identification and background information from charterers to comply with international anti-money laundering, sanction and counter-terrorism financing laws.
What remedies exist if a guest violates an owner’s privacy by posting unauthorised content or disclosing private details?
The MYBA Charter Agreement contains a confidentiality clause which says that each party will keep their respective information confidential. It's not unheard of for some owners to also have their own non-disclosure agreement (NDA) that they want a charterer to sign up to. In terms of what action could be taken, it really depends on the facts of what's happened and what the potential loss is. On the flip side, an owner should also make sure there are provisions in the crew employment agreements in relation to confidentiality to ensure that crew do not post unauthorised content or disclose private details of charterers that they have come into contact with during charters.
Any errors or omissions are the author's alone. This article does not provide, or replace, legal, financial or tax advice.